Boards of Trustees for the Federal Hospital Insurance & Federal Supplementary Medical Insurance Trust Funds Issue Annual Report to Congress (Part 11 of 12)

WASHINGTON, June 8 (TNSrep) -- The Boards of Trustees for the Federal Hospital Insurance and Federal Supplementary Medical Insurance Trust Funds issued a 263-page annual report to Congress on June 2, 2022.

(Continued from Part 10 of 12)

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F. MEDICARE AND SOCIAL SECURITY TRUST FUNDS AND THE FEDERAL BUDGET

One can view the financial operations of Medicare and Social Security in the context of the programs' trust funds or in the context of the overall Federal budget. The financial status of the trust funds differs fundamentally from the impact of these programs on the budget, and people often misunderstand the relationship between these two perspectives. Each perspective is appropriate and important for its intended purpose; this appendix attempts to clarify their roles and relationship.

By law, the annual reports of the Medicare and Social Security Boards of Trustees to Congress include a statement of the financial status of the programs' trust funds--that is, whether these funds have sufficient revenues and assets to enable the payment of benefits and administrative expenses. This trust fund perspective is important because the existence of trust fund assets provides the statutory authority to make such payments without the need for an appropriation from Congress. Under current law, Medicare and Social Security benefits can be paid only if the relevant trust fund has sufficient income or assets.

The trust fund perspective does not encompass the interrelationship between the Medicare and Social Security trust funds and the overall Federal budget. The budget is a comprehensive display of all Federal activities, whether financed through trust funds or from the general fund of the Treasury. This broader focus may appropriately be termed the budget perspective or government-wide perspective and is officially presented in the Budget of the United States Government/96 and in the Financial Report of the United States Government./97

Payroll taxes, income taxes on Social Security benefits, Medicare premiums, and special State payments to Medicare finance the majority of Medicare and Social Security costs. In addition to these earmarked receipts from workers, employers, beneficiaries, and States, and interest payments on their accumulated assets, the trust funds (principally the SMI trust fund) rely on Federal general fund revenues for some of their financing. The financial status of a trust fund appropriately considers all sources of financing provided for that fund, including the availability of trust fund assets that Medicare or Social Security can use to meet program expenditures. From a budget perspective, however, general fund transfers represent a draw on other Federal resources for which there is no earmarked source of revenue from the public. For this appendix, interest payments to the trust funds and asset redemptions, both of which occur due to the postponed use of earmarked revenues, are classified as draws on other Federal resources, since they require payments from the Treasury general fund. The budget perspective does not reflect that publicly held debt and interest payments to the public are both lower because the trust funds hold some of the debt.

At the beginning of the Medicare program, general fund and interest payments were relatively small. These amounts have been increasing, and the expected future growth of Medicare and Social Security will make their interaction with the Federal budget increasingly important. As the difference between earmarked and total trust fund revenues grows, the financial operations of Social Security and Medicare can appear markedly different depending on which of the two perspectives one uses./98

Illustration with Actual Data for 2021

Table V.F1 illustrates the trust fund and budget perspectives using actual data on Federal financial operations for fiscal year (FY) 2021. The first three columns show revenues and expenditures for HI, SMI, and OASDI, respectively, and the fourth ("Combined") column is the sum of these three columns. The sixth ("Total") column shows total revenues and expenditures for the total Federal budget, and the fifth ("Other") column presents all other Federal programs (including the general fund account of the Treasury) and is calculated as the difference between the amounts in the "Total" column and the amounts in the "Combined" column. The table shows earmarked revenues from the public separately from revenues from other government accounts (general revenue transfers and interest credits). Note that the transfers and interest credits received by the trust funds are the key differences between the two perspectives.

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Table V.F1.--Annual Revenues and Expenditures for Medicare and Social Security Trust Funds and the Total Federal Budget, Fiscal Year 2021/1

Notes: 1. For comparison, HI taxable payroll, OASDI taxable payroll, and GDP were $9,688 billion, $7,705 billion, and $20,937 billion, respectively, in 2021.

2. Totals do not necessarily equal the sums of rounded components.

3. n/a indicates not applicable.

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The trust fund perspective reflects both categories of revenues for each trust fund. For HI, revenues from the public plus transfers/credits from other government accounts were $1.8 billion more than total expenditures in FY 2021, as shown at the bottom of the first column./99

For the SMI trust fund, the statutory revenues from beneficiary premiums, State transfers, general revenue transfers, and interest earnings collectively were $83.8 billion more than expenditures in FY 2021. Note that it is appropriate to view the general revenue transfers from other government accounts as financial resources from the trust fund perspective since they are available to help meet trust fund outlays. For OASDI, total trust fund revenues from all sources (including $73.3 billion in interest payments and $0.0 billion in general fund reimbursements) were $54.4 billion less than expenditures.

From the government-wide or budget perspective, only earmarked revenues received from the public--principally taxes on payroll and benefits, plus premiums--and expenditures made to the public are important for the final balance./100

For HI, the difference between such revenues ($329.9 billion) and total expenditures made to the public ($331.9 billion) was $2.1 billion in FY 2021, indicating that HI had a negative effect on the overall budget in FY 2021. For SMI, beneficiary premiums, fees on brand-name prescription drugs to Part B, and State payments to Part D of Medicare were the only sources of revenues from the public in FY 2021 and represented only about 28 percent of total expenditures. The remaining $366.5 billion in FY 2021 outlays represented a substantial net draw on the Federal budget in that year./101

For OASDI, the difference between revenues from the public ($1,007.1 billion) and total expenditures ($1,134.8 billion) was $127.6 billion, indicating that OASDI also had a negative effect on the overall budget last year if the effects of past trust fund cash flows on interest payments from the Federal Government to the public are not taken into account.

Thus, from the trust fund perspective, HI and SMI both had an annual surplus in FY 2021, and OASDI had a deficit. From the budget perspective, HI, SMI, and OASDI each required a net draw on the budget. HI, SMI, and OASDI collectively had a trust fund surplus of $31.2 billion in FY 2021and a net draw of $496.2 billion on the budget.

It is important to recognize that each viewpoint is appropriate for its intended purpose but that one perspective cannot be used to answer questions related to the other. In the case of SMI, the trust fund will always be in balance and there will always be a net draw on the Federal budget. In the case of HI, trust fund surpluses in a given year may occur with either a positive or negative direct impact on the budget for that year. Conversely, a positive or negative budget impact from HI offers minimal insight into whether its trust fund has sufficient total revenues and assets to permit payment of benefits.

The next section illustrates the magnitude of the long-range difference between projected expenditures and revenues for Medicare and Social Security from both the trust fund and budget perspectives.

Future Obligations of the Trust Funds and the Budget

Table V.F2 collects from the Medicare and OASDI Trustees Reports the present values of projected future revenues and expenditures over the next 75 years. For HI and OASDI, tax revenues from the public are projected to fall short of statutory expenditures by $5.1 trillion and $23.3 trillion, respectively, in present value terms./102

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Table V.F2.--Present Values of Projected Revenue and Cost Components of 75-Year Open-Group Obligations for HI, SMI, and OASDI

Notes: 1. For comparison, the present values of HI taxable payroll, OASDI taxable payroll, and GDP are $752.7 trillion, $631.6 trillion, and $1,724.4 trillion, respectively, over the next 75 years. This present value of GDP is calculated using HI-specific interest discount factors and differs slightly from the corresponding amount shown in the OASDI Trustees Report.

2. Medicare present values are calculated using HI-specific discount f actors, while OASDI amounts use OASDI-specific discount factors.

3. Totals do not necessarily equal the sums of rounded components.

4. n/a indicates not applicable.

5. 0.0 indicates an amount of less than $50 billion.

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From the budget perspective, these are the additional amounts that would be necessary in order to pay HI and OASDI benefits and other costs at the level scheduled over the next 75 years. From the trust fund perspective, the amounts needed are smaller by the value of the accumulated assets in the respective trust funds--$0.2 trillion for HI and $2.9 trillion for OASDI--that could be drawn down to cover a part of the projected shortfall in tax revenues. Three points about this comparison in table V.F2 are important to note:

* The trust fund and budget perspectives differ in the treatment of the starting trust fund assets. Those accumulated reserves are credited to the trust fund programs under the trust fund perspective but are not under the budget perspective.

* The amounts shown in table V.F2 assume payment of full scheduled benefits, which is not permissible under current law after trust fund depletion. For both the budget and trust fund perspectives, the 75-year HI and OASDI deficits reflect the financial imbalance after trust fund depletion. By law, however, once assets are depleted, expenditures cannot be made except to the extent covered by ongoing tax receipts and other trust fund income.

* In practice, the long-range HI and OASDI deficits would likely be addressed by future legislation to reduce expenditures, increase payroll or other earmarked tax revenues, or some combination of such measures. For Medicare, in particular, lawmakers have frequently enacted legislation to slow the growth of expenditures.

The situation for SMI is somewhat different. SMI expenditures for Part B and Part D are projected to exceed premium and other dedicated revenues by $47.5 trillion. To keep the SMI trust fund solvent for the next 75 years will require general fund transfers of this amount, and these transfers represent a formal budget requirement. From the trust fund perspective, the present value of projected total premiums and general revenues is about equal to the present value of future expenditures.

From the 75-year budget perspective, the present value of the additional resources that would be necessary to meet projected expenditures, for the three programs combined, is $75.9 trillion.103 To put this very large figure in perspective, it would represent 4.4 percent of the present value of projected GDP over the same period ($1,724 trillion). The components of the $75.9-trillion total are as follows:

Link to table below.

These resource needs would be in addition to the payroll taxes, benefit taxes, and premium payments. As noted, the asset redemptions and SMI general revenue transfers represent formal budget commitments, but no provision exists for covering the HI and OASDI trust fund deficits once assets are depleted.

As discussed throughout this report, the Medicare projections shown here could be substantially understated as a result of other potentially unsustainable elements of current law. Although this issue does not affect the nature of the budget and trust fund perspectives described in this appendix, it is important to note that actual long-range present values for HI expenditures and SMI expenditures and revenues could exceed the amounts shown in table V.F2 by a substantial margin.

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The report is posted at: https://www.cms.gov/files/document/2022-medicare-trustees-report.pdf

(Continues with Part 12 of 12)

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